Capacity

Capacity to Contract. The parties to a contract must have legal capacity to contract. Minors have limited capacity to contract. Contracts with persons under guardianship or who lack sufficient mental capacity to contract are voidable. We say that these contracts are voidable, not void. By that, we mean that the contract may be disaffirmed by the person who lacks capacity (or his guardian).

We started our discussion of the law of contracts with a contract between father and son. Father promised son a car in return for son's promise to get straight A's in school. What happens if son performs as promised, but then his father fails to deliver the car. Can the son force his father to deliver the car; or can he only make his father pay the value of the car. If the son feels humiliated by father's failure to perform, may he recover damages for that humiliation. If, for want of the car, the son loses a job opportunity, can the son sue for lost wages? Suppose the son almost get's an A average. Is that a "material breach" of the contract excusing father's non-performance? Supposing brother constantly plays the radio, preventing son from studying, supposing father refuses to make brother turn off the radio, does that excuse son's non-performance? Or does it allow son additional time to perform? What if son is seriously ill, and misses an exam? Suppose father loses his job. And so on.

Void versus Voidable. A void contract is unenforceable by either party. A gambling contract will not be enforced by the courts, for example, even if neither party raises the defense of illegality. A voidable contract is enforceable at the option of the person with the power to declare it null. When a party elects to disaffirm a contract, the law will require return of what has been received, subject to equitable principles.

Unconscionability. Some contract provisions may be so unfair that the law will refuse to enforce them. Sometimes the problem is the term itself. Should we allow a lease to disclaim landlord's liability for all kinds of negligence--even very serious (gross) negligence? Sometimes the unfairness arises from gross inequality in bargaining power. Many statutory protections arise because the legislature seeks to prevent unconscionable contracts: usury laws, intensive regulation of insurance contracts, regulation of brokerage contracts, for example. To what extent should courts be policing contract formation on a case-by-case basis?

Fraud. We visit fraud in the law of torts; we visit it also in the law of contracts. Fraud may give the defrauded party the right to rescind the contract--that is to crank things backwards as if the contract had not been signed.

Rescission In the cases of incapacity, fraud, and mistake, a party may have the right to rescind. When a contract is rescinded, the parties, in essence, refund what they have received so far. Sometimes, this requires careful exercize of discretion. In order to perfect the right to rescind, a party must act promptly. A notice of disaffirmance must be clear and unambiguous. The party must be prepared to restore the benefits already received.

Mistake. Mistake arises in several contexts. Suppose, for example, a landlord leases a building to a cheese manufacturer for use as a cheese warehouse. Both landlord and tenant believe that the property is zoned to allow storage of dairy products or food, but it is not. May the tenant then rescind the lease, promptly, upon discovery of the problem. This is a mistake of law, the mistaken belief that the premises are suitable for the tenant's purposes. Does it make a difference, if the landlord knows the purpose intended by the landlord? Does it make a difference if the tenant asked the landlord to find a cheese warehouse, and the landlord produced this particular location. Might the landlord's selection of the premise constitute a form of misrepresentation?

What if the parties make a mistake in the contract language. Sometimes a contract is closed at the last minute. The parties engage in feverish drafting and redrafting. What if someone accidently leaves in the old language, even thought the parties have agreed to the new? What if a typist inserts an extra zero in the payment price and nobody catches it? A mistake of this kind may justify an action to reform the contract, upon a clear and convincing showing that a mistake has been made.